Efficient Value at Risk Estimation for Mortgage-Backed Securities

31 Pages Posted: 23 Apr 2014

See all articles by Chulwoo Han

Chulwoo Han

Durham University; Capital Markets & Portfolio Research, Inc.

Frank C. Park

Seoul National University

Jangkoo Kang

College of Business, Korea Advanced Institute of Science and Technology (KAIST)

Date Written: April 21, 2014

Abstract

We develop an efficient Monte Carlo simulation-based methodology for value at risk (VaR) and sensitivity analysis of mortgage-backed securities (MBS) that employs an importance sampling technique developed for quadratic VaR models. Our approach, whose validity is derived from a fundamental result in perturbation analysis, is applicable to any analytic interest rate and prepayment model, and more generally to any path-dependent cashflows that admit analytic gradients. We compare the accuracy and computational performance of our VaR estimators with those obtained via finite-difference gradient approximation schemes.

Suggested Citation

Han, Chulwoo and Park, Frank C. and Kang, Jangkoo, Efficient Value at Risk Estimation for Mortgage-Backed Securities (April 21, 2014). Available at SSRN: https://ssrn.com/abstract=2427491 or http://dx.doi.org/10.2139/ssrn.2427491

Chulwoo Han (Contact Author)

Durham University ( email )

Mill Hill Lane
Durham, Durham DH1 3LB
United Kingdom

Capital Markets & Portfolio Research, Inc. ( email )

Room 312 Bldg 314
Seoul National University
Seoul, 151-742
Korea
+82 2 872 7131 (Phone)

Frank C. Park

Seoul National University ( email )

Kwanak-gu
Seoul, 151-742
Korea, Republic of (South Korea)

Jangkoo Kang

College of Business, Korea Advanced Institute of Science and Technology (KAIST) ( email )

85 Hoegiro, Dongdaemoon-gu
Seoul 02455
Korea, Republic of (South Korea)
+82 2 958 3521 (Phone)

Register to save articles to
your library

Register

Paper statistics

Downloads
171
Abstract Views
987
rank
173,897
PlumX Metrics